Income Tax Penalty for Cash Loans u/s 271D Cannot Survive Procedural Defect: Supreme Court:

Income Tax Penalty for Cash Loans u/s 271D Cannot Survive Procedural Defect: Supreme Court

A search and seizure operation under Section 132 was conducted in the case of Usha Bala Group and V.V. Balakrishna Rao, during which certain documents relating to the assessee were found. Proceedings under Section 153C were initiated against the assessee, who filed his return of income declaring a total income of Rs. 24,13,920. During assessment under Section 143(3) read with Section 153C, the Assessing Officer examined alleged cash loan transactions purportedly reflected in seized material, including a letter dated 02.06.2014. While additions were made under Section 69A on the basis of alleged excess payments, the assessment order did not record any finding or satisfaction regarding violation of Section 269SS. Thererafter the Joint Commissioner initiated penalty proceedings under Section 271D and levied penalty of Rs. 6.65 crore. The assessee challenged the penalty before the High Court. Issue Raised: Whether penalty under Section 271D of the Income Tax Act can be sustained when the assessment order does not record any satisfaction or finding regarding violation of Section 269SS. HC's Ruling: The High Court allowed the writ petition and set aside the penalty order. The Court held that in the absence of any recorded satisfaction by the Assessing Officer during assessment proceedings regarding acceptance of loans in cash in violation of Section 269SS, initiation of penalty proceedings under Section 271D was without jurisdiction. The AO did not arrive at any categorical finding of cash loan transactions and appeared to have accepted the assessee’s explanation. Relying on the Supreme Court’s decision in CIT v. Jai Laxmi Rice Mills, the Court held that such satisfaction is a mandatory precondition, especially since penalty under Section 271D is levied by a different authority. The Supreme Court dismissed the Revenue’s Special Leave Petition both on the ground of unexplained delay of 350 days and on merits, thereby affirming the High Court’s ruling. To Read Full Judgment, Download PDF Given Below